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PENSION EVALUATION – FLORIDA
ERISA PLANS

RETIREMENT AGE ASSUMPTIONS

The Normal Retirement Age (NRA) for most ERISA Plans is age 65. 1 Because this is the Retirement age indicated in the majority of Qualified Defined Benefit Plans, age 65 is recommended as the default age for the purpose of calculating the present cash value (pcv) of the marital portion of an employee's monthly retirement benefit incident to a marital dissolution action.

The Argument.

Manipulation of the employee's retirement age can significantly impact on present cash value. The Chart shows:

Column One: Valuation Date Age (VDA) of Employee

Column Two: PCV if Age 60 is NRA Assumption

Column Three: PCV if Age 65 is NRA Assumption

Column Four: Percent Increase of PCV, if Age 60 is Assumed

Difference in Present Cash Value at Indicated Ages

VDA

Value @ 60

Value @ 65

Overvalued @ Age 60 Pct.

38

$22,464.09 $ 14,821.59

51.56%

45

$60,755.55

$40,564.62

49.77%

50

$149,095.79

$100,822.28

47.88%

55

$378,145.33

$259,530.98

45.70%

60

$534,362.65

$372,188.21

43.57%

Chart Significance.

  • The younger the employee on the valuation date, the greater the overstatement of present cash value resulting from use of the earlier retirement age
  • As the employee ages the percent of overstatement decreases, but, the absolute amount of the overstatement may be significantly increased

1 See 29 U.S.C. 1002(24), which provides:

The term "normal retirement age" means the earlier of--

  • the time a plan participant attains normal retirement age under the plan, or
  • the later of--
  • the time a plan participant attains age 65,(emphasis mine) or
  • the 5th anniversary of the time a plan participant commenced participation in the plan.

Alert.

Recall, the majority but not all ERISA Qualified Defined Benefit Plans use a Normal Retirement Age of Age 65. To confirm Normal Retirement Age for the Plan being evaluated, it is suggested that you obtain relevant plan information, e.g.,

  • Summary Plan Description
  • Plan Document

prior to making an NRA Assumption. A useful guide to what is the Plan's Normal Retirement Age is to compute the Age at which there is no "actuarial penalty" for separation from service. Not all plans permit unreduced "early retirement". Yet, an argument can be made that the point at which an actuarially unreduced benefit is available to the employee is in fact her or his Normal Retirement Age . 2

An Evaluator Ploy.

Many plans permit "early retirement". Often a Qualified Defined Benefit Plan's earliest retirement age is: Age 55. Let us examine the significance of a pension Evaluator who "artfully" crafts a pension valuation based on retirement at age 55. The outcome of a valuation for an employee at age 45 is shown. It is emphasized that the outcomes will vary depending on the age of the Employee Spouse at the time of the evaluation.

Difference in Present Cash Value at Indicated Ages

VDA Value @ 55 Value @ 65 Overvalued Pct.

45 $59,291.16 $40,564.62 46.16%

Commentary.

The variety of algorithms that can be presented to the attorney for consideration are virtually limitless. What is emphasized in this newsletter, is the need for attorney acuity regarding pension valuations. The experienced practitioner will elect a demarche that does not expose her or his client to an adverse financial experience. Be cautious, avoid retaining an inexperienced Evaluator. Retain a pension Evaluator with a consistent and reasonable methodology.

Statistical Foundation.

The Appendices that follow are for those interested in derivation of the values shown above.

APPENDIX A

Date of Birth

7/1/1976

7/1/1976

Date of Marriage25

7/1/2001

7/1/2001

Date of Hire27

7/1/2003

7/1/2003

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

38

38

Life Exp @ VD

40.1

40.1

YOS D of C

11

11

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

60

65

Time to NRA

22

27

Time from NRA

18.1

13.1

Earning Rate

3.50%

3.50%

Benefit accrual rate

2.00%

2.00%

Final Avg. Pay

$65,000.00

$65,000.00

Mo. Benefit at D of C

$1,191.67

$1,191.67

Marital

$595.83

$595.83

To Former Spouse

$297.92

$297.92

IAC

$47,882.47

$37,521.84

Discount Pd.

22

27

Disc Factor

46.92%

39.50%

Marital PCV

$22,464.09

$14,821.59

Date of Birth

Date of Marriage25 Date of Hire27

APPENDIX B

7/1/1969 7/1/1969

7/1/1994 7/1/1994

7/1/1996 7/1/1996

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

45

45

Life Exp @ VD

33.7

33.7

YOS D of C

18

18

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

60

65

Time to NRA

15

20

Time from NRA

18.70

13.70

Earning Rate

3.50%

3.50%

Benefit accrual rate

2.20%

2.20%

Final Avg. Pay

$75,000.00

$75,000.00

Mo. Benefit at D of C

$2,475.00

$2,475.00

Marital

$1,237.50

$1,237.50

To Former Spouse

$618.75

$618.75

IAC

$101,786.74

$80,715.04

Discount Pd.

15.00

20.00

Disc Factor

59.69%

50.26%

Marital PCV

$60,755.55

$40,564.62

APPENDIX C

Date of Birth

7/1/1964

7/1/1964

Date of Marriage25

7/1/1989

7/1/1989

Date of Hire27

7/1/1991

7/1/1996

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

50

50

Life Exp @ VD

29.4

29.4

YOS D of C

23

23

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

60

65

Time to NRA

10

15

Time from NRA

19.40

14.40

Earning Rate

3.50%

3.50%

Benefit accrual rate

2.60%

2.60%

Final Avg. Pay

$100,000.00

$100,000.00

Mo. Benefit at D of C

$4,983.33

$4,983.33

Marital

$2,491.67

$2,491.67

To Former Spouse

$1,245.83

$1,245.83

IAC

$210,314.34

$168,912.49

Discount Pd.

10.00

15.00

Disc Factor

70.89%

59.69%

Marital PCV

$149,095.79

$100,822.28

APPENDIX D

Date of Birth

7/1/1954

7/1/1949

Date of Marriage25

7/1/1979

7/1/1974

Date of Hire27

7/1/1981

7/1/1976

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

55

55

Life Exp @ VD

25.3

25.3

YOS D of C

33

33

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

60

65

Time to NRA

5

10

Time from NRA

20.30

15.30

Earning Rate

3.50%

3.50%

Benefit accrual rate

3.00%

3.00%

Final Avg. Pay

$125,000.00

$125,000.00

Mo. Benefit at D of C

$10,312.50

$10,312.50

Marital

$5,156.25

$5,156.25

To Former Spouse

$2,578.13

$2,578.13

IAC

$449,118.03

$366,094.08

Discount Pd.

5.00

10.00

Disc Factor

84.20%

70.89%

Marital PCV

$378,145.33

$259,530.98

Date of Birth

Date of Marriage25 Date of Hire27

APPENDIX E

7/1/1949 7/1/1949

7/1/1974 7/1/1974

7/1/1976 7/1/1976

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

60

60

Life Exp @ VD

21.3

21.3

YOS D of C

38

38

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

60

65

Time to NRA

0

5

Time from NRA

21.30

16.30

Earning Rate

3.50%

3.50%

Benefit accrual rate

3.00%

3.00%

Final Avg. Pay

$125,000.00

$125,000.00

Mo. Benefit at D of C

$11,875.00

$11,875.00

Marital

$5,937.50

$5,937.50

To Former Spouse

$2,968.75

$2,968.75

IAC

$534,362.65

$442,042.84

Discount Pd.

0.00

5.00

Disc Factor

100.00%

84.20%

Marital PCV

$534,362.65

$372,188.21

Date of Birth

Date of Marriage25 Date of Hire27

APPENDIX F
Significance of ERA at 55

7/1/1969 7/1/1969

7/1/1994 7/1/1994

7/1/1996 7/1/1996

D of C

7/1/2014

7/1/2014

Valuation Date

7/1/2014

7/1/2014

Valuation Date Age

45

45

Life Exp @ VD

33.7

33.7

YOS D of C

18

18

Coverture Fraction

100.00%

100.00%

Ret Age Assumed

55

65

Time to NRA

10

20

Time from NRA

23.70

13.70

Earning Rate

3.50%

3.50%

Benefit accrual rate

2.20%

2.20%

Final Avg. Pay

$75,000.00

$75,000.00

Mo. Benefit at D of C

$1,732.50

$2,475.00

Marital

$866.25

$1,237.50

To Former Spouse 3

$433.13

$618.75

IAC

$83,636.03

$80,715.04

Discount Pd.

10.00

20.00

Disc Factor

70.89%

50.26%

Marital PCV

$59,291.16

$40,564.62